Financial reporting BSB00133-6)



Question 1.

Accounting is known as “the language of business” (Matthew Gill, 2009) and an important tool of accounting to judge the company financial performance is financial statement which related and valued to a wide range of user groups (Melville, 2014). Whilst legislation have a broad view about which companies must show in financial statements, stock exchange regulations are all about listed shared, a narrower view and detailed rules about transactions and other items treatment are accounting standard missions (Melville, 2014). Due to the increasing globalization of business, financial reports become more important for Investors and Shareholders who want to get clear view of firms’ performance. As a result, IASB is continue developing a set of accounting standards from 2001 that are applying widely the world and have current improve in many countries of the world and can be accepted in EU.

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Firstly, an issue can be discussed is the advantages of the globalization of accounting standards for the firm. According to Securities and Exchanges Commitment (2008), the convergence of some accounting standards is increasing comparability of financial statements by applying IFRS. The great benefit is going to multinational companies that now can easily compare the company’s performance in different country through one convergence form and accounting standards. In addition, the firm also limits misunderstanding of foreign financial statements that can save time and money to find a solution (Melville, 2014). Financial reports follow IFRS can give a clear view of the firm’s status and direct grow the trading and investment from partners.

In other way, Barry Elliott and Jamie Elliott (2013) indicates that an advantage of global standards is reducing the cost of reporting under different standards, makes it become cross-border finance, leads to a decrease in firm’s cost of capital with an growth in share prices. A financial statement prepared under one reporting standard is the most effective base for new investors to collect data, analyze and consider investment for the firm. As thousand firms in the world want to access new investors and foreign capital market, again, IFRS improves the comparability and focuses on investors. The conclusion is that the convergence of accounting standards that improves the comparability of statements and then attracts the new investors (enhance focusing on investors) reduces the unnecessary expenses and particularly grows the global trade.

Secondly, accounting standards still exist the criticism that the widely use of IFRS can be limited. The overall problem is that each country has their own regulatory framework so the adoption of IFRS has been restricted. Ashley Harper and her colleagues (2012) had a study about the IFRS adoption in the US with industry professional suggested that the implement of IFRS to US GAAP, the loss of control over standard setting or the transition cost to implement possibly occur. With the same reason, Elliott and Elliott (2013) had the view of asset and liability changes due to a fall to recognize assets and liabilities from the past. The explanation for this issue was that in the last year, the firm followed the country regulation such as GAAP, but in the next year, the application of IFRS made the changes in determines which one is asset, which one is liabilities. As a result, a reduction of assets and a growth of liabilities in financial statement could appear, the firm would seem to be not having a good performance for the next year and consequently financial statements are a less reliable source of information.

The users can recognize monopolist term of IASB in setting standard (Jordan, 2013). IASB is under responsibility of developing and publishing new standard based on the needs and benefit of external users and GAAP can exist to be comparable for effective.

With those above existing criticism, IFRS is still being considered to apply in the EU. The enterprises wants to access to foreign financial markets, multinational companies and also investors now need a complete accounting standard that overcomes all those disadvantages to become a unified trade bloc.

Professionals who are concerned about accounting standards can see the difficulties for the firm, especially privately owned Small and Medium-size entity (SMEs), to follow IFRS or even little GAAP (simpler accounting regulations applying to small companies) (Alan Melville, 2014). In US, private firms can have their own financial reporting standard in the form that follows the framework of American Institute of Certified Public Accountants (AICPA) (Hoffleder, 2012). Private firms under these two conditions do not comply with GAAP:

  • Do not have public accountability.
  • Do not publish general-purpose financial statements for external users.
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SMEs can face the problem about arising of some unrelated cost or lose time for items that in the end not add much value to financial statements for the users.

Internal and external users both are finding an effective standard to manage and also attract new resources from foreign market. Until now, IFRS is considered to be the best solution for globalization of finance. IASB step by step completes their standard, fixes the weaknesses to converge all other standards and going to be accepted in EU.

Words count: 839

Question 2.

With the purpose of operating the company on the right track, the existence of board of directors is really important. Board of directors is elected as representatives of the stockholders to take responsibility in establish corporate management (Baysinger and Butler, 1985). The main role of board of directors is presenting a fair value of both management and shareholders’ interest so that each member in the board has their own fair view of objects. Good corporate governance can be the guidance for directors working effectively which consists of laws, regulations and also relationship between managers and investors of one company.

In this task, accountability, fairness and transparency are the keys to consider the person who suite the board. An essential problem of any company is that finding a person who can reliable and take responsible for actions. Human is not God. Mistakes can occur even they are perfect. The question is what people looking for the actions to solve mistakes and learn from them to improve themselves. Not to pass the trash and look straight to problems in order to help company develop is one target the board looking for. Board of directors influences executives and also stakeholders. As a result, board need a cold head to decide which one is the meet the demand of both stakeholders and also under the control of executives due to company situation. For examples, the target profit the board go through have to based on the market and company but also achieve the satisfied of stakeholders’ dividend for the year. The trust is the key for enterprises and presented by transparency. Transparency in finance, transparency in management strategies is helping company gain the trust from investors. As a result, investors consider more capital can invest for the firm to expand their facilities also their rights in that firm.

Return to the problem in this question, knowledge of a director is important but in other side, that person need to have ability to communicate and listen to other members’ opinions. The question indicated that Mr. John Spate was too radical and his different view so the affair of communication in the group was raised. He also will take the retirement in the four months’ time, which can influence his accountability before taking the rest. With Mr. John Spate, he has a Bachelor in Commerce so he may suite the board but he is retirement and may overage for working hard with the board. Another candidate that persuades all the members is Mr. Lord Sperring. He has his own experiment from his company. The board has a well connection to him and seem like he has good relationship with other partners to open opportunity for managing directors developing the company in positive way.

From the case in this question, knowledge and working experience is important but the ability to work, communicate, consider with fairness and accountability in job also is under the aspects to judge and choose the right person to be a part of board of directors. Therefore, Lord Sperring is the person who the most satisfied members among the three candidates.

Words count: 516

Question 3.

a. The company intends to apply IFRS 8 in this year. Based on IFRS 8 from financial accounting and reporting book, company has to identify an operating segment follow as the condition (Barry E. and Jamie E., 2013):

  1. That engages in business activities from which it may earn revenues and incur expense;
  2. Whose operating results are regularly reviewed by the entity’s chief operating decision maker, to make decisions about resources to be allocated to the segment and to assess its performance; and
  3. For which discrete financial information is available.
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Compared to the table, all the sections are not under the conditions of operating segment. In the report, head office is not making profit for entity so we do not need to report this segment to BODs. After identifying operating segments, we will compare with other criteria to decide which one belongs to reporting segments. The table below includes operating segments we can report.

Operational area

Revenue for the year to 31 march 20X4 ($000)

Profit/loss for the year to 31 March 20X4 ($000)

Assets at 31 March 20X4 ($000)





















Entity total




b. From the table above, we can see that the revenue of OPR1, OPR2 and OPR3 are more than 10% of total revenue of the firm; therefore these segments are reportable segments.

The other operating segments are OPR4 and OPR5 take less than 10% the firm’s total revenue so they cannot separate report. These two segments are validly being combined for reporting purposes.

As final check we need to establish that the combined revenues of reportable segment we have identified ($34.5 million + $27 million + $6 million = $67.5 million) is at least 75% of the GAMMA total revenue of $73.5 million. $67.5 million is 91% of $73.5 million. As a result, no other segments need to be added. (Barry E. and Jamie E.)

c. Despite of realizing in 2006, IFRS 8 received critical comments in 2007. In first year, the users saw the problem that IFRS 8 required disclosure of information and the measurement of for external users less than internal management decisions. Compared with other existence regulation such as IAS 14 Revised and SSAP 25, IFRS 8 showed the lack of detail in measuring revenue segments, expenses, assets and liabilities. IFRS 8 is an explanation of how segmental results and assets have been measured (Louise C.).

The concern also about Chief Operating Decisions Maker (CODM) who has responsibility to identify which is operating segments and reportable segments to the BODs. In 2011, lots of experts claimed that the definition of CODM in IFRS 8 made confusion in internal.

IASB is complementing to finish a clear and perfect standard about Operating segments from the old criticism. At the moment, EU is not really interested in apply IFRS in their financial statements due to the gap during applying these standards.

Word count: 488


1. Gill, Matthew.Accountants' Truth. New York, Oxford: Oxford University Press, 2009. Print.

2. Elliott, Barry.Financial Accounting And Reporting. Harlow: Pearson Education Limited, 2013. Print.

3. Melville, Alan.International Financial Reporting. Pearson Education Limited, 2014. Print.

4. Harper, Ashley; Leatherbury, Linda; Machuca, Ana;and Philips, JoDee. The impact of switching to International Financial Reporting Standards on United States business, 2012. Faculty Publications and Presentation. Online

5. Barry D. Baysinger, Henry N. Butler. 'Corporate Governance And The Board Of Directors: Performance Effects Of Changes In Board Composition'.Journal of Law, Economics, & Organization1 (1985): 101-124. Web. 24 June 2015.

6. Hoffelder, Kathy. 'Small Private Firms Getting Their Own Accounting Standards -'.CFO.2012 Web. 23 June 2015.

7. Crawford, Louise, Christine V Helliar, and D. M Power.Politics Or Accounting Principles. London: Centre for Business Performance, 2010. Print.

8. Anonymous. (No Date).Rules and Regulations.Available: Last accessed 24th June 2015.